EXHIBIT 10.1
24/7 REAL MEDIA, INC.
SERIES A AND SERIES A-1 PREFERRED STOCK AND COMMON STOCK WARRANT
PURCHASE AGREEMENT
This SERIES A AND SERIES A-1 PREFERRED STOCK AND COMMON STOCK WARRANT PURCHASE
AGREEMENT (the "AGREEMENT") is made as of July 1, 2002, by and among 24/7 Real
Media, Inc., a Delaware corporation (the "COMPANY") and the parties listed on
the Schedule of Purchasers attached to this Agreement as EXHIBIT A (each
purchaser hereinafter individually referred to as a "PURCHASER" and collectively
as the "PURCHASERS").
RECITALS
WHEREAS, the Company desires to sell and the Purchasers desire to purchase
shares of the Company's Series A Convertible Preferred Stock, par value $0.01
per share (the "SERIES A STOCK") and Series A-1 Nonvoting Convertible Preferred
Stock, par value $0.01 per share (the "SERIES A-1 STOCK"), and accompanying
warrants to purchase shares of the Company's Common Stock, par value $0.01 per
share (the "COMMON STOCK").
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF STOCK AND WARRANTS
1.1 AUTHORIZATION. As of the Closing, the Company will have authorized
the issuance and sale to the Purchasers, pursuant to the terms of this
Agreement, of up to 360,000 shares of the Series A Stock, and of up to 340,000
shares of the Series A Stock issuable upon conversion of the Series A-1 Stock,
having the powers, designations, preferences, voting rights, relative and other
special rights, and the qualifications, limitations and restrictions set forth
in the resolutions of the Company's Board of Directors (the "BOARD") attached
hereto as EXHIBIT C (the "SERIES A DESIGNATION"), and of up to 340,000 shares of
the Series A-1 Stock having the powers, designations, preferences, relative and
other special rights, and the qualifications, limitations and restrictions set
forth in the resolutions of the Board attached hereto as EXHIBIT D (the "SERIES
A-1 DESIGNATION"), subject, in the case of the Additional Closing Shares (as
defined below), to the prior approval of the stockholders of the Company. The
shares of Common stock issuable upon conversion of all the Series A Stock issued
hereunder (including Series A Stock issuable upon conversion of the Series A-1
Stock issued hereunder), is referred to herein as the "CONVERSION STOCK" and the
Series A Stock issuable upon conversion of the Series A-1 Stock issued hereunder
is referred to herein as the "SERIES A-1 CONVERSION STOCK."
1.2 AGREEMENT TO PURCHASE AND SELL STOCK. Subject to the terms and
conditions of this Agreement including, without limitation, the satisfaction (or
waiver) of the conditions set forth in Sections 4.1, 4.2, 5.1 and 5.2 below,
each Purchaser severally agrees to purchase from the Company at the Closing, and
the Company agrees to issue and sell to each Purchaser at the Closing, the
number of shares of Series A Stock and Series A-1 Stock set forth beside such
Purchaser's name in the columns entitled "Series A Shares" and "Series A-1
Shares" on EXHIBIT A hereto, at a price per share equal to Ten Dollars ($10.00)
(the "PURCHASE PRICE PER SHARE"). The shares of Series A Stock issued and sold
to the Purchasers at the Closing are referred to herein as the "SERIES A CLOSING
SHARES" and the shares of Series A-1 Stock issued and sold to the Purchasers at
the Closing are referred to herein as the "SERIES A-1 PURCHASED SHARES."
Notwithstanding the forgoing, the Purchasers shall have the right prior to the
Closing to substitute additional purchasers who may purchase some or all of the
number of Series A Closing Shares and Series A-1 Purchased Shares set forth
beside such Purchaser's name on EXHIBIT A hereto at the Closing, subject to the
approval of the Company, which approval shall not be unreasonably withheld, in
which event EXHIBIT A hereto shall be modified accordingly and each such
substituted purchaser shall be deemed a "Purchaser" hereunder.
1.3 WARRANTS. Subject to the terms and conditions hereof, at the
Closing, the Company shall issue and deliver to each Purchaser: (a) a warrant in
substantially the form attached hereto as EXHIBIT E to purchase up to that
number of shares of Common Stock equal to the aggregate number of Series A
Closing Shares purchased under this Agreement by such Purchaser at the Closing
divided by the Closing Discounted Common Stock Price (as defined in the Series A
Designation (the "CLOSING DISCOUNTED COMMON STOCK PRICE"), such warrant to be
exercisable at an exercise price per share equal to the Closing Discounted
Common Stock Price (each, a "SERIES A CLOSING WARRANT"), (b) a warrant in
substantially the form attached hereto as EXHIBIT F to purchase up to that
number of shares of Common Stock equal to the aggregate number of Series A-1
Purchased Shares purchased under this Agreement by such Purchaser at the Closing
divided by the Closing Discounted Common Stock Price, such warrant to be
exercisable at an exercise price per share equal to the Closing Discounted
Common Stock Price, and to become exercisable only upon the occurrence of
certain events as identified therein (each, a "SERIES A-1 CLOSING WARRANT"; the
Series A Closing Warrants and the Series A-1 Closing Warrants are referred to
collectively herein as the "CLOSING WARRANTS"), and (c) a warrant in
substantially the form attached hereto as EXHIBIT G to purchase up to that
number of shares of Common Stock equal to (i) one million (1,000,000),
multiplied by (ii) the percentage of the number of Series A Closing Shares and
Series A-1 Purchased Shares purchased by such Purchaser at the Closing, such
warrant to be exercisable at an exercise price per share equal to the Closing
Discounted Common Stock Price, and to become exercisable only upon the
occurrence of certain events as identified therein (each, a "CONTINGENT
WARRANT"). The shares of Common Stock issuable upon exercise of the Closing
Warrants are referred to herein as the "CLOSING WARRANT SHARES" and the shares
of Common Stock issuable upon exercise of the Contingent Warrants are referred
to herein as the "CONTINGENT WARRANT SHARES."
1.4 CLOSING. The closing of the purchase and sale of the Series A
Closing Shares and the Series A-1 Purchased Shares hereunder shall be held at
the law offices of counsel to the Company, Proskauer Rose LLP, 0000 Xxxxxxxx,
Xxx Xxxx, Xxx Xxxx, 00000, at 10:00 a.m. local time promptly following the
satisfaction (or waiver) of the conditions set forth in Sections
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4.1, 4.2, 5.1 and 5.2 hereof (other than conditions which will be satisfied at,
but not before, the Closing) or at such other time and place as the Company and
Purchasers purchasing a majority of the Series A Closing Shares and Series A-1
Purchased Shares mutually agree (which time and place are designated as the
"CLOSING").
1.5 DELIVERY. Subject to the terms of this Agreement, at the Closing,
the Company shall deliver to each Purchaser (i) certificates representing the
number of Series A Closing Shares and Series A-1 Purchased Shares purchased by
such Purchaser as designated on EXHIBIT A hereto and (ii) the Closing Warrants
and the Contingent Warrant deliverable to such Purchaser pursuant to Section 1.3
hereof, against payment to the Company of the aggregate Purchase Price Per Share
for the Series A Closing Shares so purchased by check or wire transfer of
immediately available funds to such account as may be designated by the Company
no later than 12:00 p.m. Pacific Time on the business day preceding the Closing,
and by delivery to State Street Bank & Trust N.A. (the "ESCROW AGENT") on behalf
of the Company, of the aggregate Purchase Price Per Share for the Series A-1
Purchased Shares so purchased, by check or wire transfer of immediately
available funds, to be held in escrow by the Escrow Agent pursuant to the terms
of that certain escrow agreement to be executed and delivered by the Purchasers,
the Company and the Escrow Agent on or before the Closing in the form attached
hereto as EXHIBIT H (the "ESCROW AGREEMENT").
1.6 ADDITIONAL CLOSING NOTICE. In the event that, at any time from and
after the Closing and prior to the date that is five (5) business days prior to
the scheduled date of the Stockholder Meeting, the Company shall receive written
notice from one or more of the Purchasers (the "ADDITIONAL CLOSING PURCHASERS")
stating each such Additional Closing Purchaser's intention to purchase shares of
Series A Stock in the Additional Closing (as defined below), including the
number of shares of Series A Stock to be so purchased by each Additional Closing
Purchaser (which number of shares shall not be less than an aggregate of
$500,000 divided by the Purchase Price Per Share, or greater than an aggregate
of $2 million divided by the Purchase Price Per Share) (the "ADDITIONAL CLOSING
NOTICE"), then, subject to the terms and conditions of this Agreement including,
without limitation, the satisfaction (or waiver) of the conditions set forth in
Sections 4.1, 4.3, 5.1 and 5.3 below, each Additional Closing Purchaser
severally agrees to purchase from the Company at the Additional Closing, and the
Company agrees to issue and sell to each Additional Closing Purchaser at the
Additional Closing, the number of shares of Series A Stock listed in the
Additional Closing Notice for purchase by such Additional Closing Purchasers
(the "ADDITIONAL CLOSING SHARES"). Upon receipt of the Additional Closing Notice
by the Company, EXHIBIT A hereto shall be deemed to be modified to include the
applicable Additional Closing Shares in the column labeled "Additional Series A
Shares" next to each Additional Closing Purchaser. Notwithstanding the forgoing,
the Additional Closing Purchasers shall have the right to substitute additional
purchasers who may purchase some or all of such number of Additional Closing
Shares at the Additional Closing, subject to the approval of the Company, which
approval shall not be unreasonably withheld, in which event EXHIBIT A hereto and
the Investors' Rights Agreement (as defined below) shall be modified accordingly
and each such substituted purchaser shall be deemed a "Purchaser" hereunder and
thereunder.
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1.7 ADDITIONAL SERIES A WARRANTS. Subject to the terms and conditions
hereof, at the Additional Closing, the Company shall issue to each Additional
Closing Purchaser a warrant in substantially the form attached hereto as
EXHIBIT E to purchase up to that number of shares of Common Stock equal to the
aggregate number of Additional Closing Shares purchased under this Agreement by
such Additional Closing Purchaser at the Additional Closing divided by the
Closing Discounted Common Stock Price, such warrant to be exercisable at an
exercise price per share equal to the Closing Discounted Common Stock Price
(each, an "ADDITIONAL CLOSING WARRANT"). The shares of Common Stock issuable
upon exercise of the Additional Closing Warrants are referred to herein as the
"ADDITIONAL CLOSING WARRANT SHARES" and the Closing Warrant Shares, Contingent
Warrant Shares and the Additional Closing Warrant Shares are referred to herein
collectively as the "WARRANT SHARES." The Closing Warrants, the Contingent
Warrants and the Additional Closing Warrants are referred to herein collectively
as the "WARRANTS."
1.8 ADDITIONAL CLOSING. The closing of the purchase and sale of the
Additional Closing Shares hereunder shall be held at the law offices of counsel
to the Company, Proskauer Rose LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx, 00000,
promptly following the satisfaction (or waiver) of the conditions set forth in
Sections 4.1, 4.3, 5.1 and 5.3 hereof (other than conditions which will be
satisfied at, but not before, the Additional Closing) or at such other time and
place as the Company and Additional Closing Purchasers purchasing a majority of
the Additional Series A Shares mutually agree, but in no event later than three
(3) days after the date of the satisfaction (or waiver) of the conditions set
forth in Sections 4.1, 4.3, 5.1 and 5.3 hereof (other than conditions which will
be satisfied at, but not before, the Additional Closing) (which time and place
are designated as the "ADDITIONAL CLOSING").
1.9 DELIVERY. Subject to the terms of this Agreement, at the
Additional Closing, the Company shall deliver to each Additional Closing
Purchaser (i) certificates representing the number of Additional Closing Shares
purchased by such Additional Closing Purchaser as designated on EXHIBIT A hereto
and (ii) the Additional Closing Warrant deliverable to such Purchaser in
connection with the Additional Closing hereunder, against payment to the Company
of the aggregate Purchase Price Per Share for the Additional Closing Shares so
purchased by check or wire transfer of immediately available funds.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchasers, as of the date of this
Agreement and as of the Closing and the Additional Closing, and except as set
forth with reasonable specificity on the Disclosure Letter delivered to
Purchasers concurrently with this Agreement (the "DISCLOSURE LETTER"), as
follows:
2.1 ORGANIZATION AND STANDING: CERTIFICATE OF INCORPORATION AND
BYLAWS. The Company is a corporation duly organized and validly existing under
the laws of the State of Delaware, is in good standing under such laws and is
authorized to exercise all of its corporate powers, rights and privileges. The
Company has the requisite corporate power and authority to own, lease and
operate its properties and assets and to conduct its business as presently
conducted, other than such corporate power and authority, the absence of which
would not reasonably be expected to cause a Material Adverse Effect. The Company
is qualified to do
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business as a foreign corporation in each jurisdiction where the failure to be
so qualified would reasonably be expected to cause a Material Adverse Effect.
True, correct and complete copies of the Company's Certificate of Incorporation
and Bylaws, each as will be in effect at the Closing, have been delivered to
counsel for the Purchasers.
2.2 CORPORATE POWER; AUTHORIZATION.
(a) The Company has the requisite corporate power to execute and
deliver the Financing Agreements, to issue and sell the Securities (as defined
below) hereunder, to execute and file the Series A Designation and the Series
A-1 Designation (the "CERTIFICATES OF DESIGNATION") and to carry out and perform
its obligations under the terms of the Financing Agreements and the Certificates
of Designation.
(b) All corporate action on the part of the Company, its
stockholders, officers and directors necessary for the authorization, execution,
delivery and performance of the Financing Agreements, the Escrow Agreement and
Certificates of Designation and for the authorization, sale, issuance (or
reservation for issuance) and delivery of the Securities, and the performance of
the Company's obligations hereunder and thereunder, has been taken, other than
the Stockholder Approval. This Agreement has been duly executed and delivered by
the Company and constitutes, and the Investors' Rights Agreement and the Escrow
Agreement when executed and delivered will constitute, legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application affecting the enforcement of creditors' rights. The Certificates of
Designation have been filed prior to the Closing with the Secretary of State of
the State of Delaware and will be in full force and effect, enforceable against
the Company in accordance with their terms and shall not have been amended
unless in compliance with their terms.
2.3 SUBSIDIARIES. Each of the subsidiaries of the Company (the
"SUBSIDIARIES") is validly existing, and the Company is the sole record and
beneficial owner of the all of the capital stock of each of the Subsidiaries.
There is no obligation or commitment of the Company or any Subsidiary to issue
shares, options, warrants or other rights with respect to any Subsidiary to any
person. The Company has no affiliated companies other than the Subsidiaries and
does not otherwise own or control, directly or indirectly, any material equity
interest in any other corporation, partnership, association or other business
entity except as disclosed in the Financial Statements. The Company is not a
party to any material partnership or joint venture.
2.4 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (A)
140,000,000 shares of Common Stock, of which 50,966,713 are issued and
outstanding as of the date hereof and (B) 10,000,000 shares of Preferred Stock,
$0.01 par value per share (the "PREFERRED STOCK"), of which no shares are issued
and outstanding, and of which 700,000 shares are designated as Series A Stock
and 340,000 shares are designated as Series A-1 Stock. All such issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable
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federal and state securities laws. Except as set forth in the Financing
Agreements or in Schedule 2.4 of the Disclosure Letter, and except for
11,386,547 shares of Common Stock reserved for issuance under the Company's 1998
Stock Incentive Plan, of which 8,301,509 shares are subject to outstanding
options issued under such plan and 1,023,162 shares have been issued and are
included in the issued and outstanding Common Stock number listed in the
preceding sentence; 2,500,000 shares of Common Stock reserved for issuance under
the Company's 2001 Stock Incentive Plan for Non-Officers, of which 2,176,184
shares are subject to outstanding options issued under such plan and 5,188
shares have been issued and are included in the issued and outstanding Common
Stock number listed in the preceding sentence; 1,250,000 shares of Common Stock
reserved for issuance under the Company's 2001 Equity Compensation Plan, of
which 1,250,000 shares have been issued and are included in the issued and
outstanding Common Stock number listed in the preceding sentence; 3,000,000
shares of Common Stock reserved for issuance under the Company's 2002 Equity
Compensation Plan, of which 248,397 shares have been issued and are included in
the issued and outstanding Common Stock number listed in the preceding sentence;
and 4,020,412 shares of Common Stock issuable upon the exercise of the warrants
listed in Schedule 2.4 of the Disclosure Letter, (i) no shares of the Company's
capital stock are subject to preemptive rights or any other similar rights; (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, and there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing indebtedness of the Company or by which the
Company is or may become bound; (iv) there are no amounts outstanding under, and
there will be no amounts due upon termination of, any credit agreement or credit
facility; (v) there are no financing statements securing obligations in any
amounts greater than Five Hundred Thousand Dollars ($500,000) in the aggregate,
filed in connection with the Company; (vi) there are no agreements or
arrangements under which the Company is obligated to register the sale of any of
its securities under the Securities Act; (vii) there are no outstanding
securities or instruments of the Company or which contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company is or may become bound to redeem a security of
the Company; (viii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (ix) the Company does not
have any stock appreciation rights or "phantom" stock plans or agreements or any
similar plan or agreement.
(b) ISSUANCE OF SECURITIES. As of the Closing, the Series A Stock
and the Series A-1 Stock will have been duly authorized and, upon issuance in
accordance with the terms hereof, shall be (i) validly issued, fully paid and
non-assessable, (ii) free from all taxes, liens and charges with respect to the
issuance thereof and (iii) entitled to the rights and preferences set forth in
the Certificates of Designation. As of the Closing, at least 12,200,390 shares
of Common Stock (subject to adjustment pursuant to the completion of any stock
dividend, stock
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subdivision, stock combination, recapitalization, reorganization, consolidation,
or merger) will have been duly authorized and reserved for issuance upon
conversion of the Series A Closing Shares and upon exercise of the Warrants. As
of the Closing, at least 340,000 shares of Series A Stock (subject to adjustment
pursuant to the completion of any stock dividend, stock subdivision, stock
combination, recapitalization, reorganization, consolidation, or merger) will
have been duly authorized and reserved for issuance upon conversion of the
Series A-1 Purchased Shares. Upon conversion of the Series A Stock in accordance
with the Series A Designation and upon the exercise of the Warrants in
accordance with their terms, the shares of Conversion Stock and Warrant Stock,
as applicable, shall be (i) validly issued, fully paid and non-assessable, (ii)
free from all taxes, liens and charges with respect to the issuance thereof and
(iii) entitled to the rights accorded to a holder of Common Stock. Upon
conversion of the Series A-1 Stock in accordance with the Series A-1
Designation, the shares of Series A-1 Conversion Stock shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issuance thereof and (iii) entitled to the rights
accorded to a holder of Series A Stock under the Series A Designation. Subject
to the accuracy of the representations and warranties of each of the Purchasers
in this Agreement, the issuance by the Company of the Securities is exempt from
registration under the Securities Act and applicable state securities laws, and
the Securities will be issued in compliance with all applicable state and
federal securities laws. The issuance of the Securities are not (and will not
be) subject to any preemptive rights or rights of first refusal. Upon the
Closing, each share of Series A Stock shall be convertible pursuant to the terms
of the Series A Designation into 48.69735 shares of Common Stock. Upon the
Closing, each share of Series A-1 Stock shall be convertible pursuant to the
terms of the Series A-1 Designation into one share of Series A Stock.
2.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports and documents
required to be filed by the Company with the Securities and Exchange Commission
(the "SEC") since the filing of the Company's annual report on Form 10-K for the
year ended December 31, 2000. All such forms, reports and documents, including
the Company's annual report on Form 10-K for the year ended December 31, 2001,
are referred to herein as the "COMPANY SEC REPORTS." As of their respective
dates, each of the Company SEC Reports, as of the date filed and as they may
have been subsequently amended, (i) were prepared in accordance with all
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
or the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Company SEC Reports, (ii) did not contain any untrue statement of a
material fact or did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company or any of its Subsidiaries is a party or to
which the property or assets of the Company or any of its Subsidiaries are
subject are included as part of or specifically identified in the Company SEC
Reports or have been specifically identified as material agreements on SCHEDULE
2.5(a) of the Disclosure Letter, and made available, to counsel to the
Purchasers.
(b) Each of the financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports (collectively,
the "FINANCIAL STATEMENTS")
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(i) complied as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, and (iii) fairly
presented the financial position of the Company at the respective dates thereof
and for the periods indicated therein, except in the case of unaudited quarterly
financial statements for the omission of certain footnotes and subject to normal
and recurring year-end adjustments. The unaudited financial statements of the
Company for the period ending May 31, 2002, in the form provided to the
Purchasers (the "UNAUDITED 5/31/02 FINANCIAL STATEMENTS"), (i) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and with each other, and
(ii) represented in all material respects the financial position of the Company
at the respective dates thereof and for the periods indicated, except for the
omission of footnotes and statement of cash flows and subject to normal and
recurring year-end adjustments. Except as set forth in the Unaudited 5/31/02
Financial Statements or specifically identified in the Company SEC Reports, the
Company has no liabilities, contingent or otherwise, other than obligations and
commitments incurred in the ordinary course of business that are not required
under generally accepted accounting principles to be reflected in the Unaudited
5/31/02 Financial Statements, in each case which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. The Company is not aware of any material liability of any nature,
direct or indirect, contingent or otherwise, or any amount not adequately
reflected or reserved against in the Unaudited 5/31/02 Financial Statements and
notes thereto.
(c) The Company satisfies the requirements for use of Form S-3
for registration of the resale of Registrable Securities (as defined in the
Investors' Rights Agreement). The Company is not required to file and, if it
were to file a registration statement on Form S-3 on the date hereof, would not
be required to file any agreement, note, lease, mortgage, deed or other
instrument entered into prior to the date hereof and to which the Company is a
party or by which the Company is bound which has not been previously filed as an
exhibit to its reports filed with the SEC. To the knowledge of the Company,
except for the issuance of the Series A Closing Shares, the Additional Series A
Shares, the Series A-1 Purchased Shares and the Warrants contemplated by this
Agreement, no event, liability, development or circumstance has occurred or
exists, or is currently contemplated to occur, with respect to the Company or
its business, properties, operations, prospects or financial condition, that
would be required to be disclosed by the Company under applicable securities
laws or the rules and policies of Nasdaq and the Company's listing agreement
with Nasdaq, and which has not been publicly disclosed.
2.6 TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company and its
Subsidiaries have good and marketable title to, or in the case of leased
properties and assets, valid and enforceable leaseholds or licensed interests
in, all of their respective material properties and assets. Such properties and
assets are not subject to any material mortgage, pledge, lien, security
interest, conditional sales agreement, encumbrance or charge, except liens for
current taxes not yet due and payable and mechanics liens incurred in the
ordinary course of business. The material properties and assets of the Company
and its Subsidiaries are in good condition and repair in all material respects.
Except as disclosed in Schedule 2.6 of the Disclosure Letter, such material
properties and assets constitute all of the material properties and assets,
tangible and
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intangible, of any nature whatsoever, necessary to operate the Company's
business as it is currently being operated.
2.7 INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries (a)
own or have sufficient right to use, free and clear of all liens, claims and
restrictions, all material patents, trade secrets, inventions, know-how,
designs, processes, technical data, trademarks, service marks, trade names,
copyrights and other intangible or intellectual property rights ("INTELLECTUAL
PROPERTY RIGHTS") (and licenses with respect to the foregoing) needed for or
used in the conduct of its business as now conducted and as proposed to be
conducted (as set forth in the SEC Reports) without infringing upon or otherwise
acting adversely to the right or claimed right of any person or entity under or
with respect to any of the foregoing, and (b) are not obligated or under any
liability whatsoever to make any material payments by way of royalties, fees or
otherwise to any owner of, licensor of, or other claimant to, any Intellectual
Property Right, with respect to the use thereof or in connection with the
conduct of their businesses. Neither the Company nor any of its Subsidiaries are
infringing upon or otherwise acting adversely to the right or, to the Company's
knowledge, claimed right of any person under or with respect to any Intellectual
Property Right. The Company has not received any written or, to the actual
knowledge of any directors or executive officers of the Company, other
communications alleging that the Company or any of its Subsidiaries have
violated any Intellectual Property or other proprietary right of any other
person or entity, which, singly or in the aggregate, if the subject of any
unfavorable decision, ruling or finding, would reasonably be expected to cause a
Material Adverse Effect. The Company has no knowledge of any third party that is
infringing or improperly using any Intellectual Property Right held by the
Company or any of its Subsidiaries, and except as disclosed in the Company SEC
Reports neither the Company nor any of its Subsidiaries have instituted any
action, suit or proceeding in which an act constituting an infringement of any
such Intellectual Property Right was alleged to have been committed by a third
party. There is no claim, action or proceeding being made by the Company or any
of its Subsidiaries regarding any of the foregoing Intellectual Property Rights
of the Company or any of its Subsidiaries or brought or, to the Company's
knowledge, threatened against the Company or any of its Subsidiaries regarding
any of the foregoing Intellectual Property Rights of the Company or any of its
Subsidiaries, or the use of any Intellectual Property Rights of any third party
by the Company or any of its Subsidiaries that, if the subject of an unfavorable
decision, ruling or finding would reasonably be expected to cause a Material
Adverse Effect.
2.8 PROPRIETARY INFORMATION AGREEMENTS. All current and former
employees and consultants of the Company and its Subsidiaries that have or are
reasonably expected to contribute to the development of the products or
technology of the Company and/or its Subsidiaries are parties to a written
confidentiality and invention and proprietary rights assignment agreement
substantially in the form previously delivered to counsel for the Purchasers,
except where the Company's failure to obtain such agreements, in any single case
or in the aggregate, should not be reasonably expected to adversely affect the
assets, properties, financial condition, operating results or business of the
Company. To the Company's knowledge, none of the current or former employees of
the Company or any of its Subsidiaries is, or is alleged to be, in material
violation of any employment agreement, non-competition agreement, invention or
proprietary information disclosure agreement, or other contract or agreement to
which any of them is a party which violation or alleged violation relates to
their
9
relationship to the Company, its Subsidiaries, their businesses or operations,
or is in material violation of the Confidentiality and Inventions Agreement with
the Company or any of its Subsidiaries to which such employee is a party. None
of the employees of the Company or its Subsidiaries, to the Company's knowledge,
has taken, removed or made use of any material proprietary documentation,
manuals, products, materials, or any other tangible item from his or her
previous employer, and the Company and its Subsidiaries has not and will not
make use of any such material proprietary items in the business of the Company.
The Company and its Subsidiaries have taken all commercially reasonable steps to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, any of the Intellectual Property Rights of the Company and its
Subsidiaries.
2.9 PRIVACY. The Company and its Subsidiaries have obtained any and
all necessary consents from customers with regard to their collection and
dissemination of personal customer information in accordance in all material
respects with any applicable privacy policy published or otherwise communicated
by Company and any applicable laws, rules or regulations. The practices of the
Company and its Subsidiaries regarding the collection and use of personal
customer information are and have been in all material respects in accordance
with such privacy policies and with all applicable laws, rules or regulations.
The use of the current products and services of the Company and its Subsidiaries
by customers for the intended purposes of such products and services, as
described in the Company SEC Reports and in the product documentation of the
Company and its Subsidiaries, does not violate any laws, rules or regulations
regarding the collection, use or disclosure of personal information in any
material respect.
2.10 GOVERNMENTAL PERMITS. The Company and its Subsidiaries have all
governmental permits, operating authority, licenses, franchises, certificates,
consents, rights and privileges as are necessary to the operation of their
businesses as currently conducted, the absence of which would reasonably be
expected to cause a Material Adverse Effect (collectively, "PERMITS"). Such
Permits are in full force and effect, no material violations have been or are
expected to have been recorded in respect of any such Permits, and no material
proceeding is pending or threatened that could result in the revocation or
limitation of any of such Permits. The Company has not received any written
notice of proceedings relating to the revocation or modification of any such
Permits. The Company and its Subsidiaries have conducted their businesses in
material compliance with all Permits.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS; NO CONFLICTS. The Company and
its Subsidiaries are not in violation, breach or default of any term of their
respective certificates of incorporation or bylaws, or, in any material respect,
of any term or provision of any material mortgage, indenture, contract,
agreement or instrument to which the Company or any of its Subsidiaries is a
party, or of any provision of any foreign or domestic state or federal judgment,
decree, order statute, rule or regulation applicable to or binding upon the
Company or any of its Subsidiaries other than such violation, breach or default
which has not caused and would not reasonably be expected to cause a Material
Adverse Effect. The execution, delivery and performance of the Financing
Agreements and the Escrow Agreement by the Company, and the consummation by the
Company of the transactions contemplated hereby and thereby, the performance by
the Company of its obligations under the Certificates of Designation, and the
10
issuance of the Securities have not and will not (with or without notice or
lapse of time, or both): (a) conflict with or violate, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, indenture or instrument
(including, without limitation, any stock option, employee stock purchase or
similar plan or any employment or similar agreement) to which the Company or any
of its Subsidiaries is a party (including, without limitation, triggering the
application of any change of control or similar provision (whether "single
trigger" or "double trigger")); (b) violate any provision of the certificates of
incorporation or bylaws of the Company or any of its Subsidiaries; (c) result in
the creation of any material mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company or any of its Subsidiaries, or
result in the suspension, revocation, impairment, forfeiture or non-renewal of
any material Permit applicable to the operations or assets of the Company or any
of its Subsidiaries; or (d) result in a violation by the Company or any of its
Subsidiaries of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of NASDAQ). The business of the Company and its Subsidiaries is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, which violation would reasonably be expected to cause a Material Adverse
Effect on the Company. The Company is not in violation of the listing
requirements of NASDAQ or its listing agreement with Nasdaq.
2.12 LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the Company's knowledge, overtly threatened in
writing or, to the actual knowledge of any directors or executive officers of
the Company, by other means against the Company or any of its Subsidiaries or
its or their properties before any court, governmental agency, public board or
self-regulatory organization (other than ordinary course litigation that, if
determined adversely to the Company, would not be reasonably be expected to
cause a Material Adverse Effect).
2.13 EMPLOYEES. The Company SEC Reports accurately describe, as of the
date of this Agreement, the employee benefit plans and arrangements of the
Company and its Subsidiaries therein described. Except as disclosed in the
Company SEC Reports, neither the Company nor any of its Subsidiaries is bound by
or subject to (and none of its or their assets is bound by or subject to) any
arrangement with any labor union and neither the Company nor any of its
Subsidiaries has any collective bargaining agreements covering any of its
employees. There is no pending or, to the best of the Company's knowledge,
threatened union organizing effort or labor dispute involving the Company or any
of its Subsidiaries and any group of its or their employees. Subject to
applicable law and to the terms of employment agreements described in Schedule
2.13, copies of which have been provided to the Purchasers, the employment of
each officer and employee of the Company or any of its Subsidiaries is
terminable at the will of the Company. The Company and its Subsidiaries are in
compliance in all material respects with all federal, state, local and foreign
laws and regulations respecting employment and employment practices, terms and
conditions of employment, wages and hours, equal employment opportunity and with
other laws related to employment. No executive officer (as defined in Rule
501(f) of the Securities Act) has notified the Company that such officer intends
to leave the Company or otherwise terminate such officer's employment with the
Company.
11
2.14 INSURANCE. The Company has obtained and maintains in full force
and effect fire, casualty, directors' and officers' liability and other and
liability insurance policies with recognized insurers with such coverages as are
customary for companies in businesses similarly situated. The Company has not
been refused any insurance coverage sought or applied for and has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that is not materially in
excess of current levels.
2.15 MATERIAL CONTRACTS AND OBLIGATIONS.
(a) Except for the contracts and agreements filed as exhibits to
the Company SEC Reports, Schedule 2.15(a) of the Disclosure Letter contains a
complete list of all contracts to which the Company or any of its Subsidiaries
are a party, or to which any of their respective assets or properties are
subject, in each case which are, or would reasonably be expected to become,
significant or material to the business, assets, liabilities, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
(b) There are no existing, pending or, to the actual knowledge of
any directors or executive officers of the Company, threatened claims for
indemnification with respect to infringement or misappropriation (or alleged or
potential infringement or misappropriation) of intellectual property rights
under any material agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound, except for claims arising after December 31, 2001 that have been
settled, satisfied or otherwise resolved in full prior to the date hereof.
(c) Neither the Company nor any of its Subsidiaries, nor, to the
Company's knowledge, is any other party in default under or material violation
of any contract listed on Schedule 2.15(a) of the Disclosure Letter or
referenced in Section 2.15(a) to which the Company or any of its Subsidiaries is
a party.
2.16 TAX RETURNS AND PAYMENTS. The Company and its Subsidiaries have
accurately prepared and timely filed all tax returns (foreign, federal, state
and local) required to be filed by them or obtained extensions therefor. All
taxes shown to be due and payable on said returns, any assessments received, and
all other taxes due and payable by the Company or any of its Subsidiaries on or
before the date hereof have been paid or will be paid prior to the time they
become delinquent. The federal income and state income franchise tax, sales or
use tax returns of the Company and its Subsidiaries have not been audited by any
governmental authority since January 1, 2001. No material deficiency assessment
or proposed adjustment of the Company's or any of its Subsidiaries' foreign or
federal income tax or state or local taxes is pending and the Company has no
knowledge of any proposed material liability for any tax to be imposed upon its
properties or assets for which the Company has not adequately reserved. The
provision for taxes of the Company and its Subsidiaries as shown in the
Financial Statements is materially adequate for taxes due or accrued as of the
date thereof. The Company has not elected pursuant to the Internal Revenue Code
of 1986, as amended (the "CODE"), to be treated as a collapsible corporation
pursuant to Section 1362(a) or Section 341(f) of the Code and has not made any
12
other elections pursuant to the Code (other than elections which relate solely
to methods of accounting, depreciation or amortization) which would reasonably
be expected to cause a Material Adverse Effect on the Company.
2.17 NO OTHER AGREEMENTS RELATING TO VOTING OR TRANSFER. Except as
contemplated by the Financing Agreements and the Company's Certificate of
Incorporation, there is no agreement between the Company, any of its
Subsidiaries, or any of officers or directors of the Company or any of its
Subsidiaries, that directly affects or relates to the voting of or giving of
consents or approvals with respect to any voting security.
2.18 CERTAIN TRANSACTIONS. Except as disclosed in the Company SEC
Reports, (i) the Company and its Subsidiaries are not directly or indirectly
indebted to any officers or directors of the Company or any of its Subsidiaries,
or to any member of his or her immediate family, in any amount whatsoever, or to
any holder of more than five percent (5%) of the Company's outstanding Common
Stock, (ii) no holder of more than five percent (5%) of the Company's
outstanding Common Stock or any of the Company's Subsidiaries, or officer or
director of the Company or any of its Subsidiaries, or member of his or her
immediate family, has incurred any indebtedness for borrowed money, or incurred
any other liabilities, to the Company or any of its Subsidiaries, of greater
than $60,000, or has any direct or indirect ownership interest in any firm or
corporation with which the Company or any of its Subsidiaries has a business
relationship, or any firm or corporation that currently directly competes with
the Company or any of its Subsidiaries (except with respect to any interest in
less than one percent of the stock of any corporation whose stock is publicly
traded), (iii) none of the officers or directors of the Company and its
Subsidiaries, or member of his or her immediate family, is directly or
indirectly interested in or party to any contract or commercial or financial
relationship with the Company or any of its Subsidiaries with a value exceeding
$100,000, and (iv) the Company and its Subsidiaries are not guarantors or
indemnitors of any material indebtedness of any other person, firm or
corporation.
2.19 CHANGES. Since March 31, 2002 there has not been:
(a) any development, condition or circumstance which has had or
should reasonably be expected to have a Material Adverse Effect;
(b) any material damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results or business of the Company or any of its
Subsidiaries (as such business is presently conducted);
(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
Subsidiaries, except in the ordinary course of business;
(d) any waiver by the Company or any of its Subsidiaries of a
material right or of a material debt owed to it;
13
(e) any change or amendment to a material contract or material
arrangement by which the Company, any of its Subsidiaries or any of its assets
or properties is bound or subject, except in the ordinary course of business
which have not been in the aggregate materially adverse;
(f) any material change in any compensation arrangement or
agreement with any officer, or any employee or group of employees who receive,
in the aggregate, a material amount of cash, options and other remuneration
under such arrangement(s) or agreement(s), of the Company or any of its
Subsidiaries;
(g) any sale, assignment, license or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets of the Company
or any of its Subsidiaries other than non-exclusive licenses in the ordinary
course of business;
(h) any resignation or termination of employment of any officer
of the Company or any of its Subsidiaries; and the Company does not know of the
impending resignation or termination of employment of any such officer;
(i) to the actual knowledge of any director or executive officer
of the Company, receipt of notice that there has been a loss of, or order
cancellation by, any major customer of the Company or any of its Subsidiaries;
(j) any loans made by the Company or any of its Subsidiaries to
or for the benefit of its employees, officers or directors, or any members of
their immediate families in excess of $250,000 individually or in the aggregate,
other than travel advances and other advances made in the ordinary course of its
business, or any guarantees made by the Company or any of its subsidiaries to or
for the benefit of any of the foregoing persons other than in the ordinary
course;
(k) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct
redemption, purchase or other acquisition of any of such stock by the Company or
any of its Subsidiaries;
(l) any other event or condition of any character that the
Company believes would reasonably be expected to cause a Material Adverse
Effect; or
(m) any agreement or commitment by the Company or any of its
Subsidiaries to do any of the things described in this Section 2.19.
2.20 EMPLOYEE BENEFIT PLANS. The Company and its Subsidiaries have
materially complied with all applicable material local, state and federal
regulations with respect to each employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
and employee benefit plan subject to the Employee Retirement Income Security Act
of 1974, as amended.
2.21 ENVIRONMENTAL AND SAFETY LAWS. The Company and its Subsidiaries
(a) are in material compliance with any and all Environmental Laws, (b) have
received all material
14
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct its business, (c) are in material compliance with
all terms and conditions of any such permit, license or approval and (d) have no
material expenditures that are or, to Company's knowledge, will be required in
order to comply with any such Environmental Laws. The term "ENVIRONMENTAL LAWS"
means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) as
they currently exist, including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes into the environment,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of hazardous materials, as
well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
2.22 NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has engaged in any form
of general solicitation or general advertising (within in the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
Securities.
2.23 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
the Securities Act or any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated, nor will the Company take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
2.24 FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of his
actions for, or on behalf of, the Company or any of its Subsidiaries used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the United
States Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government official or employee.
15
2.25 INTERNAL ACCOUNTING CONTROLS. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in accordance with
general accepted accounting principles and to maintain asset and liability
accountability and (iii) access to assets or incurrence of liability is
permitted only in accordance with management's general or specific
authorization.
2.26 APPLICATION OF TAKEOVER PROTECTIONS. The Company and its Board
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company's Certificate of Incorporation or the laws of the state of its
incorporation which is or could become applicable to the Purchasers as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Purchasers'
ownership of the Securities, or as a result of the acquisition by the Purchasers
of additional shares of Common Stock (whether then-outstanding or newly issued).
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company, as of the date of the Agreement
and as of the Closing and the Additional Closing, but only with respect to such
Purchaser, as follows:
3.1 AUTHORIZATION. All action on the part of such Purchaser necessary
for the authorization, execution, delivery and performance by Purchaser of the
Financing Agreements has been taken, and the Financing Agreements, when executed
and delivered by the Purchaser, will constitute valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general application affecting the enforcement of creditor's
rights.
3.2 INVESTMENT. Purchaser (i) is acquiring the Series A Closing
Shares, the Series A-1 Purchased Shares, the Additional Closing Shares (if any)
and the Warrants, (ii) upon conversion of the Series A Closing Shares and the
Additional Closing Shares (if any), will acquire the Conversion Stock then
issuable upon conversion thereof. (iii) upon conversion of the Series A-1
Purchased Shares, will acquire the Series A-1 Conversion Stock then issuable
upon conversion thereof and (iv) upon exercise of the Warrants, will acquire the
Warrant Shares issuable upon exercise thereof (each of the foregoing securities
to be acquired by the Purchaser hereunder, or upon conversion or exercise of
securities acquired hereunder, are collectively referred as the "SECURITIES"),
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the Securities Act. Purchaser understands that the
Securities to be purchased by Purchaser have not been and will not be (except as
contemplated by the Investors' Rights Agreement) registered under the Securities
Act by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent as expressed herein.
16
3.3 EXPERIENCE; ACCREDITED INVESTOR. Purchaser has such knowledge and
experience in financial or business matters that Purchaser is capable of
evaluating the merits and risks of the investment in the Securities and
protecting its own interests in connection with such investment. Purchaser is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act.
3.4 RULE 144. Purchaser acknowledges that the Securities are
restricted securities within the meaning of applicable securities laws, have not
been registered under the Securities Act, and must be held indefinitely unless
subsequently registered under the Securities Act and applicable state and other
securities laws or unless an exemption from such registration is available.
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act that permit limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions. The Securities will
bear a legend reflecting these conditions on transferability thereof.
3.5 INFORMATION. Purchaser believes Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with the
Company's management and an opportunity to review the Company's facilities.
Purchaser represents and acknowledges that it believes it has had an opportunity
to ask questions and receive answers from the Company's officers, employees and
directors regarding the terms and conditions of the offering of the Securities.
Purchaser has sought such advice as Purchaser has considered necessary to make
an informed investment decision with respect to its acquisition of the
Securities. The foregoing, however, does not limit or modify any Purchaser's
rights under this Agreement including, without limitation, the representations
and warranties of the Company in this Agreement or the right of the Purchasers
to rely thereon.
3.6 FURTHER LIMITATIONS ON DISPOSITIONS. Without in any way limiting
the representations set forth above, Purchaser further agrees that, if at the
time of any transfer of any Securities, such Securities shall not be registered
under the Securities Act, prior to any disposition of all or any portion of the
Securities, the Company may require, as a condition of allowing such transfer,
that the holder or transferee furnish to the Company (i) such information as is
appropriate to establish that such transfer may be made without registration
under the Securities Act; and (ii) at the expense of the holder or transferee,
an opinion by legal counsel designated by such holder or transferee and
reasonably satisfactory in form and substance to the Company, to the effect that
such transfer may be made without registration under the Securities Act. No such
opinion of the Counsel shall be necessary for any transfer to any person or
entity that is deemed to be an "affiliate" of the Purchaser for purposes of the
Securities Act, if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if the transferee were an original Purchaser
hereunder. Notwithstanding the foregoing, with the prior written consent of the
Company, which consent shall not be unreasonably withheld, the Securities may be
pledged in connection with a bona fide margin account or other loan secured by
the Securities and such pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Purchaser
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other agreement arising hereunder; provided that in order
to make any sale, transfer or assignment of Securities, such Purchaser and its
pledgee must make
17
such disposition in accordance with or pursuant to a registration statement or
an exemption under the Securities Act.
3.7 RESIDENCE. Purchaser is a resident of that jurisdiction specified
in its address listed on EXHIBIT A.
3.8 CONFIDENTIALITY. Purchaser shall not disclose or provide to any
other person or entity any non-public information or materials, or copies
thereof, whatsoever about the Company, disclosed or made available to the
Purchasers in connection with the transactions contemplated hereby, or in
Purchaser's capacity as stockholder of the Company; provided, however, that
Purchaser may disclose such information to the Purchasers' legal and financial
advisors in connection with advice to be rendered by them to the Purchasers, or
to Purchaser's investors or potential investors or affiliates, or to any
transferee or potential transferee of the Securities if such transfer is made in
compliance with all the terms and conditions of this Agreement. Prior to such
disclosure, Purchasers shall: (i) advise such legal and financial advisors or
Purchaser's investors or potential investors or affiliates, or transferees or
potential transferee, as the case may be, that each of them shall not further
disclose such information or materials to any other person or entity or utilize
such information or materials for the benefit of any person or entity other than
the Company or the Purchasers, or such transferee, in the capacity of a
stockholder of the Company, or in connection with the transactions contemplated
hereby; and (ii) ensure that each such person or entity executes an
nondisclosure agreement in favor of the Company, the form of which is customary
for general commercial transactions. The nondisclosure obligations set forth
above shall not apply to any information which the Company determines in writing
shall not be the subject of such nondisclosure obligations, nor shall such
obligations apply to any information which, by applicable law, the Company may
not prohibit the Purchasers from disclosing. The Purchasers may disclose any
information to any governmental authority having jurisdiction over it, provided
that the Company when reasonably possible shall be given reasonable advance
written notice of Purchaser's intent to disclose any information covered under
this Section 3.8 unless Purchaser is precluded from doing so by applicable law.
3.9 GENERAL SOLICITATION. Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
3.10 BROKER-DEALER. Neither Purchaser nor any Affiliate of Purchaser
is a registered broker-dealer under the rules and regulations of the SEC and
NASD.
SECTION 4. CONDITIONS TO PURCHASERS' OBLIGATIONS.
4.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING AND THE
ADDITIONAL CLOSING. The obligation of each Purchaser hereunder to purchase
Series A Closing Shares and Series A-1 Purchased Shares at the Closing, and the
obligation of each Additional Closing Purchaser hereunder to purchase Additional
Closing Shares at the Additional Closing, if any, is subject to the fulfillment
on or prior to the Closing or the Additional Closing, as applicable, of each of
the following conditions, provided that these conditions are for each such
Purchaser's
18
sole benefit and may be waived by such Purchaser at any time in its sole
discretion by providing the Company with written notice thereof.
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Section 2 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on and as of the Closing (with respect to the Closing) or the
Additional Closing (with respect to the Additional Closing) with the same force
and effect as if they had been made on and as of the same date.
(b) COVENANTS. All covenants, agreements, and conditions in this
Agreement required to be performed or complied with by the Company on or prior
to the Closing (with respect to the Closing) or the Additional Closing (with
respect to the Additional Closing) shall have been performed or complied with in
all material respects by the Company.
(c) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser or the Additional Closing
Purchaser, as applicable.
(d) PERMITS. All governmental and third party Permits, filings
and waivers necessary for consummation of the transactions to be consummated at
the Closing (with respect to the Closing) or the Additional Closing (with
respect to the Additional Closing) shall have been obtained.
(e) FILING OF DESIGNATIONS. The Series A Designation and the
Series A-1 Designation shall have been filed with the Secretary of State of the
State of Delaware.
(f) GOOD STANDING CERTIFICATES. The Company shall have delivered
a certificate of status dated as of a date no more than three (3) business days
prior to the Closing (with respect to the Closing) or the Additional Closing
(with respect to the Additional Closing) issued by the Secretary of State of the
State of Delaware to the effect that the Company is legally existing and in good
standing.
(g) SECRETARY'S CERTIFICATE. The Company shall have delivered a
certificate executed by the Secretary or Assistant Secretary of the Company
dated as of the Closing (with respect to the Closing) or the Additional Closing
(with respect to the Additional Closing) certifying to the following matters:
(i) the resolutions adopted by the Board relating to the transactions
contemplated by this Agreement, (ii) the Company's certificate of incorporation
as of the Closing (with respect to the Closing) or the Additional Closing (with
respect to the Additional Closing), including the Series A Designation and
Series A-1 Designation, as certified by the Delaware Secretary of State, (iii)
the Bylaws of the Company; and (iv) incumbency of the officers of the Company
authorized to execute the Financing Agreements and the Warrants.
(h) STOCK CERTIFICATES AND WARRANTS. The Company shall have
executed and delivered: (i) with respect to the Closing, certificates for the
Series A Closing Shares and the Series A-1 Purchased Shares purchased by such
Purchaser at the Closing (in such denominations
19
as the Purchaser shall request) and the Series A Closing Warrant, the Series A-1
Closing Warrant and the Contingent Warrant to be issued to such Purchaser at the
Closing, or (ii) with respect to the Additional Closing, certificates for the
Additional Closing Shares purchased by such Additional Closing Purchaser at the
Additional Closing (in such denominations as the Additional Closing Purchaser
shall request) and the Additional Warrant to be issued to such Additional
Closing Purchaser at the Additional Closing.
(i) FINANCING AGREEMENTS. The Company shall have executed each of
the Financing Agreements and delivered the same to such Purchaser or Additional
Closing Purchaser, as applicable.
(j) COMPLIANCE CERTIFICATE. The Chief Executive Officer and Chief
Financial Officer of the Company shall have executed and delivered as of the
Closing or the Additional Closing, as applicable, a certificate certifying that
the conditions specified in Sections 4.1(a), (b), and (o) have been fulfilled.
(k) OPINION OF COUNSEL. Such Purchaser or Additional Purchaser,
as applicable, shall have received an opinion of Proskauer Rose LLP, counsel to
the Company, as of the Closing or the Additional Closing, as applicable, in
substantially the form as attached hereto as EXHIBIT I.
(l) LISTING OF COMMON STOCK. The Common Stock shall be designated
for quotation on either the NASDAQ National Market or the NASDAQ SmallCap
Market, and shall not have been suspended by the SEC or NASDAQ from trading on
such market, and the Conversion Stock shall have been approved for listing on
such market, subject only to notice of issuance and, in the case of the Common
Stock issuable upon conversion of the Series A-1 Conversion Stock, approval by
the Company's stockholders.
(m) RESERVATION OF COMMON STOCK. The Company shall have reserved
out of its authorized and unissued Common Stock: (a) with respect to the
Closing, solely for the purpose of effecting the conversion of the Series A
Purchased Shares and of the Series A-1 Conversion Stock into Common Stock, and
the exercise of the Closing Warrants and the Contingent Warrants for Common
Stock, at least 27,783,541 shares of Common Stock, and (b) with respect to the
Additional Closing, solely for the purpose of effecting the conversion of the
Additional Closing Shares into Common Stock and the exercise of the Additional
Warrants for Common Stock, at least 10,713,416 shares of Common Stock.
(n) NO INJUNCTIONS. No temporary restraining order, preliminary
or permanent injunction or other order or decree, and no other legal restraint
or prohibition shall exist which prevents or arguably prevents the consummation
of the transactions contemplated by the Financing Agreements, nor shall any
proceeding have been commenced or threatened with respect to the foregoing.
(o) NO MATERIAL ADVERSE EFFECT. Between the time of the execution
of this Agreement and the Closing or the Additional Closing, as applicable,
there shall have been no
20
development, condition or circumstance which has had or could reasonably be
expected to have a Material Adverse Effect.
(p) TRANSFER AGENT CERTIFICATE. The Company shall have caused to
be delivered a certificate executed by the transfer agent of the Company dated
as of the Closing of the Additional Closing, as applicable, certifying the total
number of shares of Common Stock of the Company outstanding as of the day
immediately prior to the Closing or the Additional Closing, as applicable.
4.2 ADDITIONAL CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
The obligation of each Purchaser hereunder to purchase Series A Closing Shares
and Series A-1 Purchased Shares at the Closing is subject to the fulfillment on
or prior to the Closing of each of the following conditions (in addition to the
conditions in Section 4.1 above), provided that these conditions are for each
such Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion by providing the Company with written notice thereof.
(a) ESCROW AGREEMENT. The Escrow Agreement shall have been
executed and delivered by the Company and the Escrow Agent.
(b) BOARD OF DIRECTORS. The number of authorized members of the
Board shall be eight (8) effective upon the Closing; at the request of Sunra,
Xxxxxx Xxxxxxxx shall have been appointed to the Board effective as of the
Closing to serve as one of the "SERIES A DIRECTORS" (as defined in the Series A
Designation) and, to the extent Xx. Xxxxxxxx has been appointed to the Board,
the Company shall have entered into an indemnification agreement with Xx.
Xxxxxxxx reasonably acceptable to the Purchasers.
(c) RESERVATION OF SERIES A STOCK. The Company shall have
reserved out of its authorized and unissued Series A Stock, solely for the
purpose of effecting the conversion of the Series A-1 Purchased Shares into
Series A Stock, at least 340,000 shares of Series A Stock.
(d) EXECUTIVE AGREEMENT. The Company and certain employees of the
Company listed on the signature page to the Amendments to Employment Agreements
for Certain Senior Executives in the form attached hereto as EXHIBIT J (the
"EXECUTIVE AGREEMENT") shall have duly executed and delivered the Executive
Agreement to each Purchaser.
4.3 ADDITIONAL CONDITIONS TO ADDITIONAL CLOSING PURCHASERS'
OBLIGATIONS AT THE ADDITIONAL CLOSING. The obligation of each Additional Closing
Purchaser hereunder to purchase Additional Closing Shares at the Additional
Closing is subject to the fulfillment on or prior to the Additional Closing of
each of the following conditions (in addition to the conditions in Section 4.1
above), provided that these conditions are for each such Additional Closing
Purchaser's sole benefit and may be waived by such Additional Closing Purchaser
at any time in its sole discretion by providing the Company with written notice
thereof.
(a) STOCKHOLDER APPROVAL. At a meeting duly called at which a
quorum shall be present, in person or by proxy, the stockholders of the Company
shall have, in
21
satisfaction of Nasdaq stockholder approval requirements, approved the issuance
of the Series A-1 Conversion Stock, the Additional Closing Shares (including the
Conversion Stock issuable upon conversion thereof), and the Additional Closing
Warrants (including the Common Stock issuable upon exercise thereof) (the
"NASDAQ CAP SHARES"), or such other action shall have been taken by the
stockholders of the Company as shall have satisfied the stockholder approval
requirements of Nasdaq with respect to such issuance of the Nasdaq Cap Shares.
SECTION 5. CONDITIONS TO COMPANY'S OBLIGATIONS
5.1 CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING AND THE
ADDITIONAL CLOSING. The Company's obligation to issue, sell and deliver the
Series A Closing Shares, the Series A-1 Purchased Shares, the Closing Warrants
and the Contingent Warrants at the Closing, and the Company's obligation to
issue, sell and deliver the Additional Closing Shares and the Additional Closing
Warrants at the Additional Closing, is subject to the fulfillment at or prior to
the Closing or the Additional Closing, as applicable, of the following
conditions, any of which may be waived in whole or in part by the Company at any
time in its sole discretion by providing the Purchasers with written notice
thereof.
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Purchasers in Section 3 hereof shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects at the Closing or the Additional Closing, as applicable, with
the same force and effect as if they had been made on or as of the same date.
(b) PAYMENT OF THE PURCHASE PRICE. The Purchasers or the
Additional Closing Purchasers, as applicable, shall have delivered to the
Company: (i) with respect to the Closing, the aggregate Purchase Price Per Share
for the Series A Closing Shares and Series A-1 Purchased Shares purchased at the
Closing, and (ii) with respect to the Additional Closing, the aggregate Purchase
Price Per Share for the Additional Closing Shares purchased at the Additional
Closing.
(c) FINANCING AGREEMENTS. The Purchasers or the Additional
Closing Purchasers, as applicable, shall have executed each of the Financing
Agreements and delivered the same to the Company.
(d) COVENANTS. All covenants, agreements, and conditions in this
Agreement required to be performed or complied with by the Purchasers or the
Additional Purchasers, as applicable, on or prior to the Closing (with respect
to the Closing) or the Additional Closing (with respect to the Additional
Closing) shall have been performed or complied with in all material respects by
such Purchasers or Additional Purchasers.
(e) NO INJUNCTIONS. No temporary restraining order, preliminary
or permanent injunction or other order or decree, and no other legal restraint
or prohibition shall exist which prevents or arguably prevents the consummation
of the transactions contemplated by the Financing Agreements, nor shall any
proceeding have been commenced or threatened with respect to the foregoing.
22
5.2 ADDITIONAL CONDITIONS TO COMPANY'S OBLIGATIONS AT THE CLOSING. The
Company's obligation to issue, sell and deliver the Series A Closing Shares, the
Series A-1 Purchased Shares, the Closing Warrants and the Contingent Warrants at
the Closing, is subject to the fulfillment at or prior to the Closing of the
following conditions (in addition to the conditions set forth in Section 5.1
above), any of which may be waived in whole or in part by the Company at any
time in its sole discretion by providing the Purchasers with written notice
thereof.
(a) ESCROW AGREEMENT. The Escrow Agreement shall have been
executed and delivered by the Purchasers and the Escrow Agent.
(b) EXECUTIVE AGREEMENT. The Executive Agreement shall have been
duly executed and delivered by the Purchaser and each employee of the Company
listed on the signature page thereto.
5.3 ADDITIONAL CONDITIONS TO COMPANY'S OBLIGATIONS AT THE ADDITIONAL
CLOSING. The Company's obligation to issue, sell and deliver the Additional
Closing Shares and the Additional Closing Warrants at the Additional Closing is
subject to the fulfillment at or prior to the Additional Closing of the
following conditions (in addition to the conditions set forth in Section 5.1
above), any of which may be waived in whole or in part by the Company at any
time in its sole discretion by providing the Additional Closing Purchasers with
written notice thereof.
(a) STOCKHOLDER APPROVAL. At a meeting duly called at which a
quorum shall be present, in person or by proxy, the stockholders of the Company
shall have, in satisfaction of Nasdaq stockholder approval requirements,
approved the issuance of the Nasdaq Cap Shares, or such other action shall have
been taken by the stockholders of the Company as shall have satisfied the
stockholder approval requirements of Nasdaq with respect to such issuance of the
Nasdaq Cap Shares.
SECTION 6. COVENANTS. The parties hereby covenant and agree as follows:
6.1 BOARD OF DIRECTORS MATTERS. The Company shall (i) increase the
size of the Board to eight effective no later than the Closing, shall (ii)
appoint Xxxxxx Xxxxxxxx as a member of the Board effective immediately after the
Closing to serve as one of the Series A Directors, and shall (iii) take all
action reasonably available to it to appoint the Additional Director (as defined
below) as a member of the Board effective immediately after the issuance of
Series A-1 Conversion Stock to serve as the other Series A Director. For
purposes of the preceding sentence, the "ADDITIONAL DIRECTOR" means a person
nominated by the holders of a majority of the then outstanding shares of Series
A Preferred Stock, the name of which nominee shall be conveyed by such holders
to the Company. The Company agrees to appoint Xxxxxx Xxxxxxxx to the Board
committee(s) responsible for searching for and recommending candidates for
executive management positions and approving compensation of executive officers.
The Company also agrees to place either or both Series A Directors, upon their
request, on the audit, compensation and other committees, if such Series A
Directors are qualified to serve on such committees under applicable Nasdaq
rules. The Company shall enter into an indemnification agreement reasonably
acceptable to the Purchasers with each Series A Director.
23
6.2 OBLIGATIONS. Subject to any party's right to terminate this
Agreement pursuant to Section 7.1, each party shall use reasonable best efforts
to satisfy in a timely manner each of the conditions to be satisfied by it as
provided in Section 4 (in the case of the Company) or Section 5 (in the case of
the Purchasers).
6.3 FORM D AND BLUE SKY. The Company agrees to file timely a Form D
with the SEC with respect to the Securities as required under Regulation D and
to provide a copy thereof to each Purchaser promptly after such filing. The
Company shall, on or before the Closing and the Additional Closing, take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the applicable Securities for, sale to the
Purchasers or the Additional Closing Purchasers, as applicable, at the Closing
and the Additional Closing, as applicable, pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Purchasers and the Additional Closing Purchasers
on or prior to the Closing and the Additional Closing, as applicable. The
Company shall make all timely filings and reports relating to the offer and sale
of the Securities required under applicable securities or "Blue Sky" laws of the
states of the United States following the Closing and the Additional Closing.
6.4 REPORTING STATUS. With a view to making available to the
Purchasers the benefits of Rule 144 promulgated under the Securities Act or any
similar rule or regulation of the SEC that may at any time permit the Purchasers
to sell securities of the Company to the public without registration ("RULE
144"), the Company shall take all action reasonably available to: (1) make and
keep public information available, as those terms are understood and defined in
Rule 144; and (2) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
This Section 6.4 shall terminate with respect to a Purchaser when such Purchaser
is able to sell pursuant to Rule 144(k): (a) all the shares of Common Stock
acquired hereunder then held by such Purchaser, and (b) all the shares of Common
Stock issuable to such Purchaser upon conversion or exercise of any Series A
Stock or Warrants (assuming exercise on a "cashless" exercise basis) acquired
hereunder: (i) then held by such Purchaser or (ii) issuable upon conversion of
any Series A-1 Stock acquired hereunder then held by such Purchaser.
6.5 RESERVATION OF SHARES. The Company shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, no
less than one hundred percent (100%) of the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and the Warrant
Stock, and one hundred percent (100%) of the number of shares of Series A Stock
needed to provide for the issuance of the Series A-1 Conversion Stock, without
regard to any limitations on conversions or exercise.
6.6 LISTING. The Company shall promptly secure the listing of all of
the Common Stock issuable upon conversion or exercise, as applicable, of the
Series A Closing Shares, the Additional Closing Shares, the Warrants and the
Series A-1 Conversion Shares upon each national securities exchange and
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, shall use commercially
reasonable efforts to maintain, so long as any other shares of Common Stock
shall be so listed,
24
such listing of all of the shares of Common Stock issuable from time to time
under the terms of the Financing Agreements. So long as any Securities are
outstanding, the Company shall maintain the Common Stock's authorization for
quotation or listing on the Nasdaq.
6.7 TRANSFER AGENT MATTERS. The Company and the Purchasers shall
agree, prior to the Closing, on a form of letter of instruction to be delivered
to the Company's transfer agent regarding the issuance of the Securities (which
shall include, among other matters, irrevocable instructions to issue
certificates upon conversion of the Series A Closing Shares, the Series A-1
Purchased Shares, the Additional Closing Shares and the Series A-1 Conversion
Shares). The Company shall, prior to or as of the Closing, deliver to the
transfer agent an executed copy of such letter authorizing the transfer agent to
issue, pursuant to the instructions in the letter, the Securities.
6.8 CERTAIN TAX MATTERS. The Purchasers and the Company shall, prior
to the each of the Closing and the Additional Closing, if any, agree in writing
on how to allocate the aggregate purchase price paid at such Closing and
Additional Closing among the Series A Closing Shares, the Additional Closing
Shares, the Series A-1 Purchased Shares and the Warrants, as applicable.
6.9 PRESS RELEASE. The Company shall issue a press release or other
announcement of this Agreement and the transactions contemplated hereby in such
form as mutually agreed by the Company and the Purchasers, promptly following
the Closing. The Purchasers shall not issue any press release or make any other
public statement with respect to the Financing Agreements or the transactions
contemplated thereby, except as required by law.
6.10 TRANSACTIONS WITH CERTAIN STOCKHOLDERS. So long as any Series A
Stock, Series A-1 Stock or Warrants are outstanding, the Company shall not, and
shall cause each of its Subsidiaries not to, enter into, amend, modify or
supplement any agreement, transaction, commitment or arrangement with any of its
stockholders who beneficially own 10% or more of the Common Stock (excluding any
shares of Common Stock purchased on the open market) (each a "RELATED PARTY"),
except for (a) any agreement, transaction, commitment or arrangement on an
arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, (b) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company, or (c) except as set forth on Schedule
6.10. For purposes of this Section 6.10, (i) any director who is also an officer
of the Company or any Subsidiary shall not be a disinterested director with
respect to any such agreement, transaction, commitment or arrangement, and (ii)
beneficial ownership shall be determined in accordance with Rule 13d-3 of the
Exchange Act.
6.11 EXCLUSIVITY. Without the prior approval of the Purchasers, until
the earlier to occur of: (i) the first date on which the Purchasers are entitled
to deliver a valid "Redemption Request" (as defined in Section 6.1 of the Series
A-1 Designation); (ii) the Automatic Conversion Date (as defined in Section
5.1(a) of the Series A-1 Designation); and (iii) or the termination of this
Agreement pursuant to its terms, neither the Company nor any of the Company's
directors, officers, employees, agents or representatives will solicit,
facilitate, encourage, entertain, discuss, negotiate or accept or enter into any
offer, inquiry or proposal from
25
or any agreement with any party other than the Purchasers concerning any
issuance of shares or instruments that are convertible into, or exercisable to
purchase, shares such that the shares issued or issuable in the aggregate
represents more than five percent (5%) of the Company's fully-diluted
capitalization (other than or in connection with (x) any Sale Transaction (as
defined in the Series A Designation) or (y) an acquisition of another
corporation or business entity by the Company that would not require approval by
the Company's stockholders and is not primarily for financing purposes) (any
such transaction, a "COMPETING TRANSACTION"), or provide any confidential
information of the Company to any party other than Purchasers concerning any
such Competing Transaction. The Company shall notify the Purchasers promptly of
any proposals by third parties with respect to a Competing Transaction. The
Company shall deal exclusively with the Purchasers notwithstanding any such
third party proposals.
6.12 COMPANY STOCKHOLDER MEETING. The Company will take all action
necessary in accordance with the Delaware General Corporation Law and its
Certificate of Incorporation and Bylaws to convene a special meeting of the
stockholders of the Company (including any adjournment thereof, the "COMPANY
STOCKHOLDER MEETING") for the purpose of adopting and approving: (i) the
issuance of the Nasdaq Cap Shares, (ii) a combination of up to thirty (30)
outstanding shares of Common Stock into one share of Common Stock at the
discretion of the Board, and (iii) certain matters identified in the Executive
Agreement (the "BOARD PROPOSALS"). The Company shall use its best efforts to
schedule and hold the Company Stockholder Meeting as soon as practicable after:
(a) if the Proxy Statement (as defined below) is not reviewed by the SEC, the
expiration of the 10 calendar day period set forth in Rule 14a-6 under the
Exchange Act or, (b) if the Proxy Statement is reviewed by the SEC, the date on
which the SEC has cleared the Proxy Statement for distribution, but in any event
on or before October 15, 2002 (the "STOCKHOLDER MEETING DEADLINE"). The Company
shall take all action reasonably available to it to ensure that the Company
Stockholder Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by the Company in connection with the Company Stockholder
Meeting are solicited, in compliance with the Delaware General Corporation Law,
its Certificate of Incorporation and Bylaws, the rules of Nasdaq and all other
applicable legal requirements. The Company may adjourn the Company Stockholder
Meeting if as of the time for which the Company Stockholder Meeting is
originally scheduled (as set forth in the Proxy Statement) there are
insufficient shares of Common Stock represented (either in person or by proxy)
to constitute a quorum necessary to conduct the business of the Company
Stockholder Meeting.
6.13 PROXY STATEMENT. The Company shall provide each stockholder
entitled to vote at the Company Stockholder Meeting with a proxy statement filed
with the SEC (the "PROXY STATEMENT"), which has been previously reviewed by
Purchasers and counsel of their choice (and with respect to which the Company
has provided Purchasers and their counsel with an opportunity to comment),
soliciting each such stockholder's affirmative vote at the Company Stockholder
Meeting for adoption and approval of the Board Proposals (such affirmative
approval being referred to herein as the "STOCKHOLDER APPROVAL"), and the
Company shall solicit and use its best efforts to obtain its stockholders'
adoption and approval of the Board Proposals at the Company Stockholder Meeting
and at any postponement or adjournment thereof. The Company shall promptly
notify the Purchasers of any comments by the SEC on the Proxy Statement and
shall provide the Purchasers with a copy of such comments.
26
6.14 BOARD RECOMMENDATION.
(a) RECOMMENDATION. Subject to Section 6.14(b) below: (i) the
Board shall unanimously recommend that the Company's stockholders vote in favor
of and adopt and approve the Board Proposals at the Company Stockholder Meeting;
(ii) the Proxy Statement shall include a statement to the effect that the Board
has unanimously recommended that the Company's stockholders vote in favor of and
adopt and approve the Board Proposals at the Company Stockholder Meeting; and
(iii) neither the Board nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a manner adverse
to the Purchasers, the unanimous recommendation of the Board that the Company's
stockholders vote in favor of and adopt and approve the Board Proposals.
(b) ACQUISITION PROPOSAL. Nothing in this Agreement shall prevent
the Board from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Board Proposals if (i) an Acquisition Proposal
(as defined below) is made to the Company and is not withdrawn, (ii) the Company
shall have provided written notice to the Purchasers (a "NOTICE OF ACQUISITION
PROPOSAL") advising Purchasers that the Company has received a Acquisition
Proposal, specifying all of the material terms and conditions of such
Acquisition Proposal and identifying the person or entity making such
Acquisition Proposal, (iii) the Board concludes in good faith, after
consultation with its outside counsel, that, in light of such Acquisition
Proposal, the withholding, withdrawal, amendment or modification of such
recommendation is required or necessary in order for the Board to comply with
its fiduciary obligations to the Company's stockholders under applicable law and
(iv) the Company shall not have violated any of the restrictions set forth in
Section 6.11 or this Section 6.14. For purposes of this Agreement "ACQUISITION
PROPOSAL" shall mean a bona fide written offer made by a third party to
consummate any of the following transactions: (i) a possible merger or
consolidation of Company with or into any other entity or (ii) a disposition of
all or substantially all of the assets of Company.
6.15 EQUITY LINE. For a period of one year from the Closing, the
Company shall not issue any securities pursuant the Common Stock Purchase
Agreement dated March 2001 by and between the Company, and Maya Cove Holdings
Inc., a British Virgin Islands corporation, or any other agreement related
thereto, without approval of the Board (including at least one of the Series A
Directors).
6.16 COMPLIANCE WITH LAW. Each Purchaser agrees that, prior to
December 31, 2002, such Purchaser shall not engage in any short sales, contracts
or options to sell, or other hedging activities with respect to the Conversion
Stock.
6.17 REDEMPTION FUNDS. While any shares of Series A-1 Stock remain
outstanding, the Company shall maintain sufficient legally available funds to
permit redemption in full of all then outstanding Series A-1 Stock pursuant to
the terms of the Series A-1 Designation under the Delaware General Corporation
Law and the Company's Certificate of Incorporation and Bylaws.
27
6.18 EXECUTIVE BONUSES. The Company shall not compensate, in any
manner, any of the executive officers whose names appear on the signature page
to the Executive Amendments other than as expressly provided in such executive
officers' respective employment agreements, each as amended by the Executive
Amendments ("EXPECTED COMPENSATION"), for the fiscal year ending December 31,
2002. The Company shall not otherwise avoid or seek to avoid carrying out the
intent of this Section 6.18 and the Executive Amendments, which is to reduce and
limit the amount of compensation to be paid to the executive officers referred
to above for the fiscal year ending December 31, 2002 (whether or not such
compensation is actually paid in 2002), but shall act at all times in good faith
to ensure that no compensation other than Expected Compensation is paid or
accrued with respect to such executive officers for the fiscal year ending
December 31, 2002. Notwithstanding the foregoing provisions of this Section
6.18, this Section 6.18 shall not apply to compensation arrangements approved by
the Board (including at least one of the Series A Directors).
SECTION 7. MISCELLANEOUS
7.1 TERMINATION. This Agreement may be terminated at any time by
mutual written consent of the Company and Purchasers who have agreed to
purchase, or who have purchased, a majority of the Series A Closing Shares and
Series A-1 Purchased Shares.
7.2 WAIVERS AND AMENDMENTS. Neither this Agreement nor any term hereof
may be amended except by a written instrument signed by the Company and
Purchasers holding a majority of the shares of Common Stock purchased hereunder,
assuming the prior conversion or exercise, as the case may be, of all the
then-outstanding Warrants and shares of Series A Stock into shares of Common
Stock (assuming prior conversion of all then outstanding shares of Series A-1
Stock into Series A Stock). This Agreement may not be waived except by an
instrument in writing executed by the party entitled to the benefits thereby
waived. No waiver of any term, provision or condition of this Agreement, in any
one or more instances, shall be deemed to be, or construed to be, a further or
continuing waiver of any such term, provision or condition, or as a waiver of
any other term, provision or condition of this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of New York as such laws are applied to agreements between
New York residents entered into and to be performed entirely within New York.
Each party hereto irrevocably submits to the non-exclusive jurisdiction of the
state and federal courts sitting in the Southern District of New York for the
adjudication of any dispute hereunder.
7.4 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchasers
and the closing of the transactions contemplated hereby until the earlier of (i)
the first anniversary of the earlier of the date the Series A-1 Stock is
converted into Series A Stock or the Company receives a "Redemption Request" (as
defined in Section 6.1 of the Series A-1 Designation) delivered in accordance
with Section 6.1 of the Series A-1 Designation, or (ii) the date on which the
Purchasers have sold or otherwise transferred (other than to their affiliates)
all the Securities issued to such Purchasers hereunder. All statements as to
factual matters contained in any certificate or other instrument
28
delivered by or on behalf of the Company pursuant hereto or in connection with
the transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder as of the date of such certificate or
instrument.
7.5 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto. Notwithstanding anything else herein to the contrary, each of
the Purchasers may freely assign its rights hereunder to any person or entity
that is deemed to be an "affiliate" of such Purchaser for purposes of the
Securities Act.
7.6 ENTIRE AGREEMENT. This Agreement (i) constitutes the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and supercedes all prior understandings and agreements relating
to the subjects hereof, whether written or oral between the parties hereof and
(ii) terminates any and all rights the parties may have had that arose under or
in connection with all prior understanding and agreements, including in each
case all prior term sheets between the Company and any or all of the Purchasers.
7.7 SEVERABILITY OF THIS AGREEMENT. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.8 PLACEMENT AGENT'S FEE. The Purchasers acknowledge that the Company
intends to pay a fee to Merchants Group International pursuant to that certain
letter agreement, dated as of June 28, 2002, between Merchants Group
International and the Company in connection with the sale of the Securities to
the Purchasers, in its capacity as the placement agent for the Series A
Purchased Shares, the Additional Series A Purchased Shares and the Series A-1
Purchased Shares. Each of the parties to this Agreement hereby represents that,
on the basis of any actions and agreements by it, there are no other brokers or
finders entitled to compensation in connection with the sale of the Series A
Purchased Shares, the Additional Series A Purchased Shares and the Series A-1
Purchased Shares to the Purchasers.
7.9 LEGENDS. Each certificate representing the Series A Purchased
Shares, the Additional Series A Purchased Shares, the Series A-1 Purchased
Shares, or the Conversion Stock shall be endorsed with a legend referencing such
restrictions of such rules and regulations of the SEC and such contractual
restrictions as the Company deems appropriate and a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH
29
SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
Each certificate representing the Series A Purchased Shares, the Additional
Series A Purchased Shares, the Series A-1 Purchased Shares, or the Conversion
Stock shall also bear any legend required by any applicable state or foreign
securities laws. The Company need not register a transfer of Shares or
Conversion Stock unless the conditions specified in the foregoing legends are
satisfied. The Company may also instruct its transfer agent not to register the
transfer of any of the Series A Purchased Shares, the Additional Series A
Purchased Shares, the Series A-1 Purchased Shares, or Conversion Stock unless
the conditions specified in the foregoing legend is satisfied.
7.10 REMOVAL OF LEGENDS AND TRANSFER RESTRICTIONS. The legend relating
to the Securities Act endorsed on a stock certificate pursuant to Section 7.9 of
this Agreement and the stop transfer instructions with respect to the shares of
the Series A Stock, the Series A-1 Stock, or Common Stock into which the Series
A is convertible represented by such certificate shall be removed and the
Company shall issue a certificate without such legend to the holder of such
shares, if such shares are sold under the Shelf Registration or Rule 144 or, in
the event subsection (ii) below applies, are eligible to be sold and such holder
provides to the Company an opinion of counsel reasonably satisfactory to the
Company to the effect that (i) a public sale, transfer or assignment may be made
without registration or (ii) such shares may be sold pursuant to Rule 144(k) of
the Securities Act.
7.11 TITLES AND SUBTITLES The titles of the Sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
7.13 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to the Purchasers, upon any breach
or default of the Company under this Agreement, shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default therefore or thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character by the Purchasers of any breach or default under this
Agreement, or any waiver by the Purchasers of any provisions or conditions of
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in writing and that all remedies, either under this
Agreement, or by law or otherwise afforded to the Purchasers, shall be
cumulative and not alternative.
7.14 EXPENSES.
(a) Except as set forth below in this paragraph and in
subsections 7.14(b) and 7.14(c), each party will bear its respective costs, fees
and expenses (including legal
30
and auditors' fees) incurred in connection with the Financing Agreements and the
transactions contemplated hereby and thereby, provided that the Company will pay
the first $75,000 of such legal and accounting expenses incurred by Sunra in
connection with the Financing Agreements and the transactions contemplated
hereby and thereby.
(b) The Company shall pay all fees and expenses in connection
with satisfying its obligations under Sections 6.6 and 6.13.
(c) In the event that any action, suit or other proceeding is
instituted concerning or arising out of the Financing Agreements or the
transactions contemplated hereby and thereby, the prevailing party shall recover
all of such party's reasonable costs, fees and expenses (including legal fees)
incurred in each such action, suit or other proceeding, including any and all
appeals or petitions therefrom.
7.15 NOTICES. Any notice, instruction, or communication required or
permitted to be given under this Agreement to any party shall be in writing
(which may include telex, telegram, telecopier, or other similar form of
reproduction followed by a mailed hard copy) and shall be deemed given when
actually received or, if earlier, five days after deposit in the United States
Mail by certified or express mail, return receipt requested, postage prepaid,
(or for foreign addresses by Federal Express, DHL or other comparable delivery
service) addressed to the principal office of such party or to such other
address as such party may request by written notice. Each party shall make an
ordinary, good faith effort to ensure that the person to be given notice
actually receives such notice. The address of the Purchasers shall be as set
forth at EXHIBIT A hereto or at such other address as the Purchasers shall have
furnished to the Company in writing; or if to any other holder of any Shares, at
such address as such holder shall have furnished the Company in writing or,
until any such holder so furnishes an address to the Company, at the address of
the last holder of such Shares who has so furnished an address to the Company.
Notice of change of address shall be given in accordance herewith. For ease of
reference, a current business address for the Company is as follows:
To Company: 24/7 Real Media, Inc.
0000 Xxxxxxxx
Xxx Xxxx, XX 00000
Attn: General Counsel
Tel: (000) 000-0000
Fax: (000) 000-0000
A copy of any notice to the Company shall be given to:
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
31
7.16 CERTAIN DEFINITIONS. The following terms are used in this
Agreement with the meanings indicated or referred to below.
"FINANCING AGREEMENTS" means this Agreement and the Investors' Rights Agreement.
"INVESTORS' RIGHTS AGREEMENT" means the Investors' Rights Agreement
substantially in the form of EXHIBIT B hereto.
"MATERIAL ADVERSE EFFECT" means any material adverse effect on the business,
properties, assets, operations, results of operations or condition (financial or
otherwise) of the Company and its Subsidiaries, taken as a whole, or on the
Company's ability to consummate the transactions contemplated hereby or to enter
into the agreements and instruments to be entered into in connection herewith,
or on the authority or ability of the Company to perform its obligations under
the Financing Agreements.
"NASD" means the National Association of Securities Dealers.
"NASDAQ" means The Nasdaq National Market or SmallCap Market.
"PURCHASE PRICE" means the aggregate amount of cash payable to the Company by
the Purchasers equal to the Price Per Share multiplied by the number of Series A
Preferred Stock and Series A-1 Preferred Stock to be purchased as of the
applicable Closing.
"SUNRA" means Sunra Capital Holdings Limited, a Bermuda entity.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
32
IN WITNESS WHEREOF, the parties have executed and delivered or caused
this Series A and Series A-1 Preferred Stock and Common Stock Warrant Purchase
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first written above.
"COMPANY"
24/7 REAL MEDIA, INC.
By:
-----------------------------
Printed Name:
Title:
"PURCHASERS"
SUNRA CAPITAL HOLDINGS LIMITED
By:
-----------------------------
Printed Name: Xxxxxx Xxxxxxxx
Title: President
[SIGNATURE PAGE TO SERIES A AND SERIES A-1 PREFERRED STOCK AND COMMON STOCK
WARRANT PURCHASE AGREEMENT]
EXHIBIT A
SCHEDULE OF PURCHASERS
----------------------------------- -------------------------------------------------------------------- ---------------------------
CLOSING ADDITIONAL CLOSING
----------------------------------- -------------------------------------------------------------------- ---------------------------
NO. OF NO. OF NO. OF
SERIES A SERIES A-1 NO. OF NO. OF ADDITIONAL
CLOSING CLOSING CONTINGENT ADDITIONAL CLOSING
SERIES A WARRANT SERIES A-1 WARRANT WARRANT CLOSING WARRANT
PURCHASERS AND ADDRESS SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------------------------------- ------------ ------------ -------------- ------------- ------------- ------------ --------------
SUNRA CAPITAL HOLDINGS LIMITED 160,000 779,158 340,000 1,655,710 1,000,000
000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx XX 00000
Attention: Xxxxxx Xxxxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
A copy of any notice to Sunra
shall be given to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attn.:Xxxxx Xxxxxxxx
Tel:(000) 000-0000
Fax:(000) 000-0000
----------------------------------- ------------ ------------ -------------- ------------- ------------- ------------ --------------
